[cmpxchg]

The conventional wisdom is your #2. The idea is that for the past 6 years, interest rates have been close to zero, and as a result, people who would traditionally want to park their money in bonds have been forced into equities just to get any (non-zero) return. This is particularly true for investors like pension funds that need to show a certain return each year or else the manager gets fired or does not receive a bonus.

The other issue is that Fed monetary policy tends to work with a lag of ~18 months. In other words, once the Fed starts a cycle of raising rates, recession or slow growth are the expected outcome -- not immediately but within 1-2 years following the rate increases. (Why? The reason is because borrowing costs increase for businesses -> they hire fewer workers -> more unemployment -> recession, etc.)

These are general rules of thumb, not hard rules, obviously. Also, the conventional wisdom that reigned supreme between the 1960s - 2009 may or may not hold in the future. Monetary policy has changed dramatically in recent years, and I think it's safe to say that no one is quite sure what will happen when the Fed raises rates. Some question whether they even can influence market interest rates anymore [1].

[1] http://www.nytimes.com/2015/09/13/business/economy/the-feds-...